Mark Pincher reviews the financial reports of charities and recent Smee and Ford research and concludes that more charities could invest in a return from this income stream.

This article looks at the financial contribution legacies make to the charitable sector as a whole, the potential of the legacy market place from non-charitable estates and the types of charities that receive legacies. The findings suggest all fundraising charities should be setting up legacy fundraising programmes - even though the return on the investment is unlikely to be immediate.

The importance of legacy income can be determined by the financial contribution they make to the overall income of the charitable sector. Current data shows that charities generated £51.5bn of income over the latest year and legacies generated around £1.9bn of this, thus contributing 3.7 per cent of total income.

CaritasData’s ten-year aggregate analysis of the top 500 charities by legacy income (which represents 88.9 per cent of all legacy income) shows the growth of this revenue stream (see figure 1). Strong growth can be seen in aggregate legacy values over the period, increasing from less than £1bn in 1999 to £1.7bn in 2008. The year-on-year growth rates for 2005, 2006 and 2007 in particular showed healthy increases of 9.4 per cent, 6.9 per cent and 8.6 per cent respectively. However, the rate slowed to 4.3 per cent in 2008 which can be largely attributed to the current economic climate having a negative effect on residuary values. Based on this declining trend, it can be assumed that the results for 2009 may be even lower. These results will be available in Spring 2010 (after this issue of Codicil has gone to press).

Although the value of legacies has grown over the past 10 years, the percentage it contributes to total income has decreased from 5.85 per cent to 4.5 per cent (see figure 1). This indicates that other forms of income are increasing at a faster rate or charities are diversifying their revenue streams. However, these are not reasons to discount the importance of legacies; growth has been extremely positive over the past decade, despite the negative effects of the economic climate, which is attributed to the increase in the number of charitable estates (see Codicil Winter 2009, p6).

Legacies are one of the most polarised revenue streams available to charitable organisations and out of the 169,000 charities in the UK, only a select few receive significant amounts. Between 2004 and 2008 the top ten charities received over 30 per cent of all UK legacy income and the top 25 obtained 44 per cent, which amounted to nearly half of the total amount left to UK charities. Over the five-year period, only one charity, the Royal National Institute for Blind People (RNIB), fell out of the top 10 and this was on one occasion in 2007 when it dropped to 11th place.

These figures demonstrate the extent to which a small number of organisations have cornered the market. However, this heavy skew should not deter any charity from implementing a future legacy policy. With legacy income reaching nearly £2bn in 2008 and 2009, thousands of charities of all sizes still benefit from this revenue stream each year. For example, the Great Dexter Charitable Trust received a one off legacy of £1.687m in 2008 compared to their total income of £231,000 in the previous year; and in the same year the Pain Relief Foundation received two large legacies valued at £219,000 and £186,000, which made a considerable impact on their income. It is therefore important to plan and review your legacy marketing policy or you may miss a vital funding opportunity.

Of all probated estates, 13 per cent are charitable leaving 87 per cent non-charitable. As almost £2bn is donated by a small percentage of the UK population, gains in this area are potentially huge. The past decade has witnessed growth in legacy values, mainly due to the value of assets (usually the ownership of a home), which has a positive effect on residual values. In September 2009 the Department of Communities and Local Government published its ‘Fifteen years of the Survey of English Housing 1993-2008’ . One of the findings noted that older households (aged 65 or over) were much more likely to be home owners in 2008 than in 1993, with the proportion of owner occupation rising from 62 per cent to 73 per cent. House prices grew steadily from 1993 following the collapse of house prices in the early 1990s and peaked in mid-2007 contributing to the growth in legacy values over this period. However, since November 2007 house prices have decreased resulting in a fall in residual legacy values.

Although increases in house prices will benefit legacy income in the coming years, a growth in the number of charitable estates could also significantly increase this value. In 2008, non-charitable estates were worth £40bn. In the same year, the value of wills containing charitable bequests amounted to £11.3bn, of which 17 per cent was left to charitable causes. If we applied this percentage to non-charitable estates, the legacy marketplace could be worth an additional £7.1bn.

Figure 2: Estate values for charitable and non-charitable estates 2008

Research recently conducted by Smee & Ford on the values of non-charitable estates has found that, of the 35,553 UK charitable estates, 1,580 (4.4 per cent) had net estates valued in excess of £1m. Conversely the number of non-charitable estates valued over £1m was 2,641. These estates were worth £695m. The research also shows that estate values which were most likely to contain charitable estates ranged between £200,000 and £500,000 which represents 34.7 per cent of the total number of estates. The number of non-charitable estates in this bracket was 58,114 and had a value of £17bn. Based on these findings, if legacy fundraisers are able to encourage more people with these levels of affluence to leave charitable wills, it could result in huge gains in legacy income.

Recent years have already experienced gains in the number of charitable estates from 21,456 in 2006 to 35,553 in 2008. Figure 4 shows the number of estates by estate values bands and their aggregate worth. In 2008, 22,055 female estates were charitable as opposed to 13,498 male estates, showing that females are much more likely to make bequests in wills. These total estates were valued at £6.5bn for females and £4.8bn for males, of which 17 per cent was left to charitable organisations.

However 122,909 females and 110,920 males (of probated estates) did not leave a bequest in their will. The value of these estates was £20.6bn and £19.6bn respectively. These figures illustrate the potential legacy market place - if only 1 per cent of the non charitable population decided to leave a bequest at half the value of current charitable estates, an extra £65.8m would be donated to charities.

Figure 3a & 3b: The number and value of charitable and non-charitable estates in value 2008

The total number of bequests left to charities amounted to in excess of 100,000. Closer scrutiny reveals that 53.5 per cent were pecuniary and 45.1 per cent were residuary. Effects represented the remaining 1.4 per cent. Figure 4 illustrates the causes supported by legators in order of popularity. Animals are the most popular cause, receiving over 15 per cent of legacies, followed by places of worship which is predominantly made up of many small value absolute pecuniary awards to local churches, synagogues or mosques.

Health causes have historically been the most popular category and it should be noted that figure 4 splits this area into hospice/hospitals and nursing/care which appear in third and fourth place respectively. If these two categories were combined, then health would have appeared at the top of the table representing 19.3 per cent of bequests. At the bottom of the table, education, mental health, human rights and family issues represent the least favoured causes, with less than 2 per cent of all bequests.

Figure 4: Favoured charitable causes of legators

• Legacies are worth around £2bn per annum.
• In 2008, over 100,000 bequests were made in wills.
• Aggregate legacy income is growing year on year.
• Although the death rate is falling, the number of charitable estates is increasing.
• Favoured causes are animals and medical, but opinion of baby boomers may change from these traditional causes.
• The potential of the legacy market place is huge, only 13 per cent of the population make bequests – any increases would make a significant positive impact.
• Non-charitable estates are worth £40bn.

1. Charity Market Monitor 2009 (Cathy Pharoah), CaritasData

2. www.communities.gov.uk/ publications/corporate/statistics/surveyenglishhousing15